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The logic of compromise : monetary bargaining in Austria-Hungary 1867-1913

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  • Marc Flandreau

    (Graduate Institute of International and Development Studies)

Abstract

This paper examines the historical record of the Austro-Hungarian monetary union, focusing on its bargaining dimension. As a result of the 1867 Compromise, Austria and Hungary shared a common currency, although they were fiscally sovereign and independent entities. By using repeated threats to quit, Hungary succeeded in obtaining more than proportional control and forcing the common central bank into a policy that was very favourable to it. Using insights from public economics, this paper explains the reasons for this outcome. Because Hungary would have been able to secure quite good conditions for itself had it broken apart, Austria had to provide its counterpart with incentives to stay on board. I conclude that the eventual split of Hungary after WWI was therefore not written on the wall in 1914, since the Austro-Hungarian monetary union was quite profitable to Hungarians.

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Bibliographic Info

Paper provided by Sciences Po in its series Sciences Po publications with number n°5397.

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Date of creation: Jan 2006
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Handle: RePEc:spo:wpmain:info:hdl:2441/603

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Keywords: monetary union; market integration;

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  1. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1027-56, November.
  2. Flandreau, Marc, 1993. "On the inflationary bias of common currencies : The Latin Union puzzle," European Economic Review, Elsevier, vol. 37(2-3), pages 501-506, April.
  3. Pammer, Michael, 1998. "Austrian private investments in Hungary, 1850 1913," European Review of Economic History, Cambridge University Press, vol. 2(02), pages 141-169, August.
  4. Flandreau, Marc & Jobst, Clemens, 2005. "The Ties that Divide. A Network Analysis of the International Monetary System," CEPR Discussion Papers 5129, C.E.P.R. Discussion Papers.
  5. Casella, Alessandra, 1992. "Participation in a Currency Union," American Economic Review, American Economic Association, vol. 82(4), pages 847-63, September.
  6. Flandreau, Marc & Sussman, Nathan, 2004. "Old Sins: Exchange Rate Clauses and European Foreign Lending in the 19th Century," CEPR Discussion Papers 4248, C.E.P.R. Discussion Papers.
  7. Michael G. Spencer & Peter M. Garber, 1992. "The Dissolution of the Austro-Hungarian Empire," IMF Working Papers 92/66, International Monetary Fund.
  8. Marc Flandreau & Jacques Le Cacheux & Frédéric Zumer, 1998. "Stability without a pact? Lessons from the European gold standard, 1880-1914," Economic Policy, CEPR & CES & MSH, vol. 13(26), pages 115-162, 04.
  9. Flandreau, Marc & Komlos, John, 2006. "Target zones in theory and history: Credibility, efficiency, and policy autonomy," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1979-1995, November.
  10. Marc Flandreau & Mathilde Maurel, 2005. "Monetary Union, Trade Integration, and Business Cycles in 19th Century Europe," Open Economies Review, Springer, vol. 16(2), pages 135-152, April.
  11. Schulze, Max-Stephan, 2000. "Patterns of growth and stagnation in the late nineteenth century Habsburg economy," European Review of Economic History, Cambridge University Press, vol. 4(03), pages 311-340, December.
  12. Flandreau, Marc, 2000. "The economics and politics of monetary unions: a reassessment of the Latin Monetary Union, 1865 71," Financial History Review, Cambridge University Press, vol. 7(01), pages 25-44, April.
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  1. A History Lesson for Scotland
    by Carola Binder in Noahpinion on 2013-11-27 04:05:00
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Cited by:
  1. Eichengreen, Barry, 2008. "Sui Generis EMU," CEPR Discussion Papers 6642, C.E.P.R. Discussion Papers.
  2. Accominotti, Olivier & Flandreau, Marc & Rezzik, Riad & Zumer, Frédéric, 2008. "Black Man’s Burden: Measured Philanthropy in the British Empire, 1880-1913," CEPR Discussion Papers 6811, C.E.P.R. Discussion Papers.

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